The NAPF has published its Corporate Governance Policy and Voting Guidelines - 2010 update ("Guidelines") for comment. The main driver behind the update is the new UK Corporate Governance Code and the new Guidelines are to apply to companies on the same basis as the new Code - for financial years beginning on or after 29 June 2010.

Set out below are highlights of the draft Guidelines.

Case Committees

The NAPF states in its draft UK Corporate Governance Principles ("Principles") that its members will engage collectively on routine and more serious matters. The NAPF is prepared to facilitate confidential Case Committees for members who have concerns about particular issues and/or about the strategic direction of companies. These Case Committees may assist in fulfilling the call for collective engagement in the Walker Recommendations and Principle 5 of the UK Stewardship Code. From an issuer perspective, it is obviously important to understand how Case Committees will function as their use develops.

Shareholder resolutions

There is an increased emphasis in the draft Guidelines on shareholder resolutions as an effective way of drawing attention to matters which "have not been addressed adequately through engagement or conventional voting activity". The NAPF states that "a consequence of increasingly engaged shareholders is likely to be a greater use of this device". That is an interesting conclusion, since engagement and dialogue throughout the year would usually be expected to reduce the use of blunter weapons such as shareholder resolutions. In the FTSE 350, we also have the introduction of annual re-election of directors in the UK Corporate Governance Code. The Financial Reporting Council's motivation in making that change in the Code was to give investors leverage for discussions in larger companies where individual percentage shareholdings are smaller. It is therefore interesting to see the NAPF suggesting a further tactic to be deployed at this stage. Issuers might want to consider giving the NAPF some feedback on their experience of the effectiveness of resolutions being put by shareholders - aside from the fact that shareholder resolutions by their nature have to be in somewhat simplistic terms, resolutions put by shareholders can be quite negative in terms of the maintenance of good management/shareholder relations and also, though not necessarily, can slip over the stewardship/management dividing line.

Pre-emption/poison pills

The draft Guidelines contain a new principle relating to pre-emption. Pre-emption rights are clearly dear to the UK institutional investors' hearts and issuers are reminded of that by this principle. The principle also notes that the NAPF will generally oppose the creation of any poison pills (thus protecting management and reducing shareholder rights). That will obviously be an area to watch given Vince Cable's crusade to prevent "good companies be[ing] destroyed by short term investors".

Short notice meetings

The NAPF Policy update for 2009/2010 contained a voting sanction proposal where companies tabled a resolution on short notice (other than at an AGM) and did not sufficiently justify the use of that shorter notice. That has not been pulled forward into the draft Guidelines. In our view, that is not an encouragement to use 14 day notice periods without further consideration. If a short notice period is used for a non-urgent or inappropriate matter, the sanction is likely to be reduced support for the proposal.


The NAPF is supportive of evaluation and the use of an external facilitator where appropriate. The draft Guidelines include useful discussion on what NAPF members expect to see in disclosures. As a minimum, they suggest:

  • what was specifically reviewed (including rationale behind this decision)
  • who conducted the evaluation, and whether they were internal or external appointments (including rationale behind their selection)
  • the nature of the process
  • the key findings and lessons learned
  • any follow-up required, and by whom.

Re-election of directors

Annual re-election is covered by restating the "comply or explain" nature of the requirement, though the tone of the voting guidance is that over time a failure to move to annual elections is going to require increasing justification.

Also worth focusing on is Discussion paragraph B.7.5, which looks at the relevance of the history of a director which supports his re-election. It states: "Particular care is required where a director has had significant involvement, whether as an executive director or non-executive director, in material failures of governance, stewardship or fiduciary responsibilities at a company. Shareholders rely heavily on the board's recommendation and directors should ensure that re-election proposals take into account not just the individual's performance on the board in question but also any external factors which may be relevant to that judgement." It is interesting that this picks up not only governance failures in other companies but also stewardship. Non-executives of asset managers beware! It would also be interesting to have further information on the "external factors" referred to. Are these governance, stewardship and fiduciary responsibilities in other companies - or is a wider consideration of behaviour outside the boardroom being proposed?


The NAPF has, unusually, given a short open consultation period on these draft Guidelines and it is advisable for listed companies to review the draft Guidelines and consider how they would apply them in order to give feedback. Comments are requested by 8 October.